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Monday, March 28, 2005

The Daylight Savings Anomaly

Researchers have found no small number of "stock market anomalies" (many of which we read about in graduate school). As examples, previous studies have found systematic patterns in stock returns based on calendar month (the "January Effect"), the day of the week, earnings-price ratios, momentum, and so 0n. However, here's one I hadn't heard of - the "daylight savings effect" (from Chris Dillow at Stumbling and Mumbling):

Putting the clocks forward isn’t just totalitarianism at its most intrusive.” It’s also expensive. Lisa Kramer has estimated (in this pdf) that the UK stock market falls by an average of 0.4 per cent on days after the clocks go forward. If this pattern continues on Tuesday, investors will lose £6.2 billion. And we won’t get the money back when the clocks go back in the autumn. Ms Kramer has estimated that the market also falls after that happens.
He goes on to mention other common stock market patterns. This would be a good piece to share with an investment class to spur discussions about whether simple trading strategies make sense in light of market efficiency.

Click here for the full article.

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